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Article Excerpt
Introduction
David Colander (2003) argued that principles courses, by design, fail to bring the more controversial issues of sex and drugs into the classroom. While I do not aim to argue with his proposition, I wish to point out one means of adding the important, yet controversial, topic of drug use into the principles classroom. Bergstrom and Miller's (2000) experiment on prohibition was one of the first deviations from the standard exposition on government intervention in markets, showing how supplier penalties affect the market for drugs. The experiment presented in this paper begins by depicting the current situation in America, punishment for both users and dealers, and then explores the potential policy changes of decriminalization and legalization. While the media tends to focus on the 'normative' aspects of drug legislation, students can explore the 'positive' effects that such legislation would produce.
The market for illegal drugs is interesting to students and something they have been exposed to throughout their lives. Having grown up after the heyday of Nancy Regan's "Just Say No" campaign, the more recent "This is your brain on drugs" commercials, DARE (Drug Abuse Resistance Education) programs aimed at middle school children and now "Parents: the Anti-Drug" campaign make drug education something that all college students can relate to.
However, it is also a very sensitive topic. Recent policy debates on medical marijuana, decriminalization and legalization are often presented as a moral argument instead of an economic one. While such moral discussions are generally beyond the scope of an economic principles course (and those who teach them), we can give students the tools relevant to study such issues objectively. By showing students how the illegal drug market works, and how such interventions can influence prices, drug use, and associated crime, we can instill in them the ability to approach these discussions with economic logic.
Students play the role of either a demander of drugs (user) or a supplier (dealer). Users can be one of three types, an Addict, a Casual user or a Curious individual, each able to purchase one unit of the drug. An Addict has a high willingness to pay for drugs and withdrawal costs if they are unable to purchase drugs. A Casual user has a lower willingness to pay than the addict, but does not suffer from withdrawal if a purchase is not made. The lowest willingness to pay is that of a Curious individual, who does not know if they will enjoy the drug or not. Dealers can either be high-cost or low-cost, and have one unit to sell.
The Baseline in this experiment simulates the current political environment surrounding drug use. Users and Dealers both face the possibility of arrest, fines and jail time. Although drugs are illegal, enforcement is not perfect, so some sales are made. The first treatment explored in the experiment is that of Decriminalization--a lightening (or lifting) of the penalties on drug users. The second treatment, complete Legalization of drug use and sales, mimics a market void of government regulation. An optional third treatment explores how the drug market would be affected by a sin tax such as those seen on alcohol and tobacco products. After the experiment is complete, students are assigned a 'Lab Homework,' where they draw supply and demand curves based on the data from class and compare their experimental results to those that theory would predict.
I. Decriminalization and Legalization
This experiment showcases two interventions, decriminalization and legalization, that are currently being considered in America and abroad. The debate over whether to decriminalize or legalize drug use is popular in the media and very controversial, even among economists (Thornton, 2004). Decriminalization generally involves reducing or eliminating jail time for possession of "soft" drugs such as marijuana, when used for personal consumption, although traffickers would still be prosecuted. Legalization would license the sellers of drugs, impose quality regulation, and most likely tax the industry. (1) While such policy debates tend to get heated and moralistic, there are clear economic consequences that can be considered. To teach students how to think economically, classroom discussion should be geared toward the 'positive' implications of these policies on outcomes such as drug use, government budgets and drug-related crime, rather than the 'normative' discussions put forth by politicians and the media.
Decriminalization does not directly impact drug dealers, but will influence price and quantity sold through its effect on consumers. When there are legal ramifications for drug users, such as fines and jail time, a consumer will take this potential cost into account in determining his or her willingness to pay. Decriminalization lessens the negative impact on drug users such that the demand curve should shift outward, increasing drug use and raising the price, seen as a shift from D1 to D2 in Figure 1.
[FIGURE 1 OMITTED]
Legalization results in a set of policies similar to decriminalization, but where sales are also legal. First, when demand side regulations are lifted, the higher demand curve seen under decriminalization (D2) will prevail. Second, suppliers are no longer fined and do not face threats of jail times, such that cost falls and supply should increase to...
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